Questions

Project Background 8: Value Proposition 9 Background 8: Customer Need: 0 Proposed Solution: ' Value prop Key Pro Forma Assumptions 6 Unit Revenue and Wholesale Cost: 0 Total Market Size: ' Addressable Market: 0 Expected Customers: 0 Project Start-Up Costs: 0 Ongoing Maintenance 8: Labor: * These bands are expensive (costing $3.45 each) which means that when Acme gives these solid color PowerBands away, they spend: 5.3M Guests * $3.45 per band = $18.3M for the band (not including shipping, etc.) * Acme also sells special graphic PowerBands in shops that include graphic images. These bands are NOT given away, but sold in merchandise shops. These graphic PowerBands include a variety of characters and designs that are extremely popular . . . The New Business Idea: For consideration, someone proposes that Acme allow hotel guests to upgrade their plain PowerBand to a graphic PowerBand for an extra fee. The process for proposing will be simple. Guests who make a hotel reservation will receive an email proposing this opportunity to purchase the graphic Powerband instead at the extra fee. Studies show that only about 50% of the guests receiving promotional offers will even open the email. So while the total number of visitors eligibe for the offer is 5.3M, only about 1/2 of this group will actually be aware of the offer It is your job to figure out whether or not this is a good new business for Acme. The first step is to create a Pro Forma (see next page).Pro Forma A pro forma is financial statement that leverages hypothetical data or assumptions about future values to estimate performance over a period that hasn't yet occurred. This is essentially a model of how we believe the business will perform based on assumptions. We develop pro formas for new businesses so that we can estimate whether or not they will deliver positive financial results. Assumptions/Inputs On this page, you will enter formulas/data into the green cells based on your understanding of the project. The spreadsheet will use your inputs to calcuate an Interal Rate of Return (IRR) which is the "return yield" of the Amount Acme customer will pay for upgrade $7.00 project. Acme mfg. cost for a graphic band $4.95 Acme mfg. cost for a plain band $3.45 For key assumptions/inputs, this area has already been completed for you. When this sort of section is built, these Total Acme hotel visitors in a year 3,200,000 would be the steps one would take: % visitors aware of offer 50% Expected conversion rate 5% 1) When building your list of assumptions/inputs for any model, think about the sort of information that you will Implementation costs (One-Time) $980,000 need to include when evaluated whether this is a good business. This would include: How many customers?, How Number of years for project 5 much will you earn from each customer?, How much does it cost to serve each customer?, What are the Tax Rate 3% implementation costs of the project?, How many years will the new business operate? 2) Under Assumptions, list the key elements you need with a label name and the data For Revenues... (Today) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 1) Revenue Per Customer: Determine what therevenue will be for each upgraded PowerBand. This is the amount of extra revenue that each customer will pay for the upgrade. Keep in mind that you should reference the Assumptions/Inputs section above. Revenues (enter as positive #s) 2) # Customers: Determine the expected number of people each year that will upgrade. This is equal to: Expected Revenue Per Upgrade $7.00 $7.00 $7.00 $7.00 $7.00 Total Visitors * Visitors Aware of Offer * Conversion % = # of Customers Expected Customers Per Year 80,000 80,000 80,000 80,00 80,000 Total Expected Revenue $560,000 $560,000 $560,000 $560,000 $560,000 3) For this analysis, the answer for expected revenue will be the same for each of the 5 years. The formula will calculate this for you For Costs... Costs (enter as positive #s) Expected Cost Per Customer $1.50 $1.50 $1.50 $1.50 $1.50 1) Cost Per Customer: Determine what the incremental cost will be for each upgraded PowerBand. This is the amount of extra costs that Expected Customers Per Year 80,000 80,000 80,000 80,000 80,000 will be incurred by Acme offering a graphic band as compared to a plain band. Remember, Acme is already giving away a free band before Expected Costs $120,000 $120,000 $120,000 $120,000 $120,000 this project. The proposed project woudl entail putting a graphic on it. Hint: This is equal to the cost to make a graphic band minus the cost to make a plain band 2) # Customers: Determine the expected number of people each year that will upgrade. Hint: this will be equal to the figure you used Expected Project Implementation Costs $980,000 above in "Revenues" (enter as positive #s) 3) Just like expected revenues above, expectec costs will be automaticially calcuated. It is equal to: Cost Per Customer * # Customers Cash Flows (Pre-Tax) $980,000) $440,000 $440,000 $440,000 $440,000 $440,000 4) Implementation Costs: Remember to add the one-time costs related to implementing the project. These costs are in your Taxes ($225,400) $101,200 $101,200 $101,200 $101,200 $101,200 vs (Post-Tax) $754,600) $338,800 $338,800 $338,800 $338,800 $338,800 If you complete the above sections correctly (green boxes), then the IRR will show the expected return for this project! You can think of this as IRR 35% the percent of "profit" you earn from the project (as a percent of the total amount you invest). A good return is generally anything over 10%. For the Keynote presentation, you will need to include the key data from this pro-forma (e.g. Revenues, Customers, IRR) since your executive audience will want to know how this project is expected to perform.Background & Business Concept Last year, 5.3M Guests stayed at Acme Parks hotels. Acme gave each of these guests a solid color (non-graphic) PowerBand for their visit. * The Acme Powerband is a "high-tech" bracelet. The bracelet can be assigned to a specific Guest profile and used by a Guest for a variety of functions: to enter heir hotel room, to enter the park, and to pay for items at Acme Parks similar to a credit card. The PowerBand also has a long-range radio component that can be used to identify the Guest when they are on a ride (e.g. roller coaster) enabling Acme to assign photos from that ride experience to the Guest, etc. See picture below: * These bands are expensive (costing $3.45 each) which means that when Acme gives these solid color PowerBands away, they spend: 5.3M Guests * $3.45 per band = $18.3M for the band (not including shipping, etc.) Acme also sells special graphic PowerBands in shops that include graphic images. These bands are NOT given away, but sold in merchandise shops. These graphic PowerBands include a variety of characters and designs that are extremely popular . . . . . . The New Business Idea: For consideration, someone proposes that Acme allow hotel guests to upgrade their plain PowerBand to a graphic PowerBand for an extra fee. The process for proposing will be simple. Guests who make a hotel reservation will receive an email proposing this opportunity to purchase the graphic Powerband instead at the extra fee. Studies show that only about 50% of the guests receiving promotional offers will even open the email. So while the total number of visitors eligibe for the offer is 5.3M, only about 1/2 of this group will actually be aware of the offer It is your job to figure out whether or not this is a good new business for Acme. The first step is to create a Pro Forma (see next page).Pro Forma A pro forma is financial statement that leverages hypothetical data or assumptions about future values to estimate performance over a period that hasn't yet occurred. This is essentially a model of how we believe the business will perform based on assumptions. We develop pro formas for new businesses so that we can estimate whether or not they will deliver positive financial results. Assumptions/Inputs On this page, you will enter formulas/data into the green cells based on your understanding of the project. The spreadsheet will use your inputs to calcuate an Interal Rate of Return (IRR) which is the "return yield" of the project. Amount Acme customer will pay for upgrade $7.00 Acme mfg. cost for a graphic band $4.95 Acme mfg. cost for a plain band $3.45 For key assumptions/inputs, this area has already been completed for you. When this sort of section is built, Total Acme hotel visitors in a year 3,200,000 these would be the steps one would take: % visitors aware of offer 50% Expected conversion rate 5% 1) When building your list of assumptions/inputs for any model, think about the sort of information that you will Implementation costs (One-Time) $980,000 need to include when evaluated whether this is a good business. This would include: How many customers?, How Number of years for project much will you earn from each customer?, How much does it cost to serve each customer?, What are the implementation costs of the project?, How many years will the new business operate? Tax Rate 23% 2) Under Assumptions, list the key elements you need with a label name and the data For Revenues... Today) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 1) Revenue Per Customer: Determine what therevenue will be for each upgraded PowerBand. This is the amount of extra revenue that each customer will pay for the upgrade. Keep in mind that you should reference the Assumptions/Inputs section above. Revenues (enter as positive #s) 2) # Customers: Determine the expected number of people each year that will upgrade. This is equal to: Expected Revenue Per Upgrade $7.00 $7.00 $7.00 $7.00 $7.00 Total Visitors * Visitors Aware of Offer * Conversion % = # of Customers Expected Customers Per Year 80,000 80,000 80,000 80,000 80,000 Total Expected Revenue $560,000 $560,000 $560,000 $560,000 $560,000 3) For this analysis, the answer for expected revenue will be the same for each of the 5 years. The formula will calculate this for you For Costs... Costs (enter as positive #s) Expected Cost Per Customer $1.50 $1.50 $1.50 $1.50 $1.50 1) Cost Per Customer: Determine what the incremental cost will be for each upgraded PowerBand. This is the amount of extra costs Expected Customers Per Year 80,000 80,000 80,00 80,000 80,000 that will be incurred by Acme offering a graphic band as compared to a plain band. Remember, Acme is already giving away a free band Total Expected Costs $120,000 $120,000 $120,000 $120,000 $120,000 before this project. The proposed project woudl entail putting a graphic on it. Hint: This is equal to the cost to make a graphic band minus the cost to make a plain band 2) # Customers: Determine the expected number of people each year that will upgrade. Hint: this will be equal to the figure you used Expected Project Implementation Costs $980,000 above in "Revenues" (enter as positive #s) 3) Just like expected revenues above, expectec costs will be automaticially calcuated. It is equal to: Cost Per Customer * # Customers 4) Implementation Costs: Remember to add the one-time costs related to implementing the project. These costs are in your Cash Flows (Pre-Tax) $980,000) $440,000 $440,000 $440,000 $440,000 $440,000 assumptions near the top of this page Taxes ($225,400) $101,200 $101,200 $101,200 $101,200 $101,200 Cash Flows (Post-Tax) ($754,600) $338,800 $338,800 $338,80 $338,800 $338,800 If you complete the above sections correctly (green boxes), then the IRR will show the expected return for this project! You can think of this as IRR 35% the percent of "profit" you earn from the project (as a percent of the total amount you invest). A good return is generally anything over 10%. For the Keynote presentation, you will need to include the key data from this pro-forma (e.g. Revenues, Customers, IRR) since your executive audience will want to know how this project is expected to perform